(Disclosure: This blog post is sponsored by Credit Sudhaar)
CIBIL score plays a crucial role in our financial lives. Most banks and financial institutions access your CIBIL report and score to do a background check and understand your credit behaviour before approving a credit application. A high score helps in winning their confidence in your ability to repay the money borrowed. Hence a good credit score increases the likelihood of getting approved for a loan. However, a low CIBIL score makes it difficult to find a willing lender. So if you have not kept up with your credit agreements or if you have high credit balances then these details get recorded in your report and screw up your CIBIL score. People view you as a risky borrower who might default in loan repayments.
If your loan application got turned down because of a bad CIBIL score do not despair. Here is what you can do to improve credit score and increase your chances of approval.
- Check your CIBIL report for errors– This is the first and foremost step that you should take to ensure that all the recorded data is accurate and up to date. If you find any erroneous information immediately report it to CIBIL and get it corrected.
- Credit repair – Bad credit score does not last forever. If you take steps to improve credit score then new positive information will certainly overshadow old negative records and help in bad credit fix. Analyse your report to identify the causes of the poor score. Is it missed or late payments, huge debt balances or over dependence on credit card that is bringing your score down? Work on the problem area, clean up your earlier defaults and start making payments on time.
Keep in mind that it will take some months before you can see improvements in your score. But if you are in urgent need of funds here are some alternative ways in which you can secure credit even with a bad credit score.
- Secured loan– While it is difficult to get an unsecured loan with a poor CIBIL score, it is not the case with secured loans. If you have an asset to provide sufficient security to the bank, like Gold, FD, Insurance policy or PPF then you may be able to get loan even with a bad credit score.
- Cooperative banks- You can try your luck at cooperative banks that provide small ticket loans. If you have good income and a stable job,take your monthly statements and try to gain their trust on your credibility. Show the bank that you are financially capable to repay the loan on time.
- Joint loan- If you are not able to secure a loan because of bad credit, try the route of joint loan with a family member. If they have a good credit score then applying a joint loan with them will increase your chances of approval.
- Guarantor– You can even ask a friend or family member with a good credit score to stand as a guarantor for the loan. When banks see that they can recover their investment even if the primary applicant defaults they may be willing to grant you loan even if you have a bad credit history.
- Peer to peer lending- While mainstream banks shy away from lending to people with a bad credit score there are lenders who do not follow this theoretical approach of credit assessment. The Peer to peer lending market is rapidly increasing its presence in India. Here the lenders look at the bigger picture and not just the credit score. So if you have a valid explanation of why your score went bad and why they should still trust you with their money you can stand a good chance of getting funded.
- Non-banking financial institutions-You can also have a better chance of striking a deal with NBFCs who usually have a flexible approach. Today there are lenders who may look at extending personal loan for low CIBIL score. They lend to risky borrowers but charge a higher rate of interest to compensate for the risk. If you have a genuine reason for defaulting on payments like job loss or emergency hospitalization you can expect NBFCSs to overlook your score and offer you loans.
There are several options to secure loan for bad credit. The only downside is that the high rate of interest at which they are available may hit your finances hard. Once you secure these loans make sure you make the payments on time and work towards building a good credit score.